Investment Report. Corporate Investment Proposition Passive Plus Funds Report. Standard Life

Transcription

1 Investment Report Standard Life Corporate Investment Proposition Q Corporate Investment Proposition 1

2 Our Corporate Investment Proposition is made up of a family of carefully constructed risk-based fund of fund portfolios, which offer clients a choice of active and passive investment strategies across five risk levels. They are designed to help clients achieve the right balance between risk and reward by offering sufficient choice to meet different levels of risk appetite; and providing a risk based QWPS default solution. Generally, higher risk equates to a greater potential return, whilst lower risk equates to a lower potential return. The strategic asset allocation is set using a 10 year view so the proportion of assets (for example equities or bonds) within each fund is not expected to significantly change in the short term The funds are designed to help employers and their advisers demonstrate adherence to the IGG investment governance principles for DC schemes as shown below: Clear roles and responsibilities - Solutions provided and governed by Standard Life and Standard Life Investments Effective decision making - Robust strategic asset allocation, tactical asset allocation and fund selection processes Appropriate investment options - Range of risk based options and investment styles to suit different risk attitudes Appropriate default strategy - Risk based lifestyle options Effective performance assessment - Performance reporting with clear investment objectives with ongoing review and governance at a fund and solution level Clear and relevant communication - Factsheets (including performance) and customer fund guides Choice of Investment Style Standard Life Passive Plus Funds a lower cost option investing mainly in tracker funds. carefully-selected portfolio that is mainly made up of tracker funds from Vanguard. For more specialist areas, we have included actively managed Standard Life Investments funds: the Global Absolute Return Strategies Fund (GARS), as well as commercial property and high yield bond funds. Standard Life Active Plus Funds - an activelymanaged and competitively priced option that invests in funds managed by Standard Life Investments. Designed to offer a competitively priced actively managed investment solution, the Active Plus funds are diversified, multiasset portfolios investing in a range of funds actively managed by Standard Life Investments, one of Europe s leading investment managers, including Global Absolute Return Strategies Fund (GARS), as well as commercial property and high yield bond funds. The investment process for the funds strategic asset allocations is the same as for the Passive Plus range however has the additional benefit of tactical asset allocation, which aims to take advantage of shorter-term investment opportunities. Tactical asset allocation is carried out by the Multi-Asset Investing Team. Standard Life Investments MyFolio Managed Funds an actively-managed, higher alpha option that invests mainly in funds managed by Standard Life Investments. Standard Life MyFolio Managed Funds mainly invests in Standard Life Investments funds, with the manager having the ability to select alternative investments from the rest of the market. The MyFolio Managed Fund suit includes allocations to Absolute Return Funds which offer a different expected return profile to traditional asset classes and as such provide further diversification benefits to the Funds. 20% of the growth and 10% of defensive assets within each Fund have been replaced with the Absolute Return Funds. The funds also benefit from Tactical Asset Allocation carried out by the Multi-Asset Investing Team. You can find out more about our Corporate Investment Proposition, including our fund governance processes, at Designed to offer a lower-cost investment solution, the Passive Plus funds invest in a

3 Contents 1 Environment and Activity 2 Risk 3 Risk and Return Characteristics 5 Performance 6 Standard Life Passive Plus I Pension Fund 7 Standard Life Passive Plus II Pension Fund 8 Standard Life Passive Plus III Pension Fund 9 Standard Life Passive Plus IV Pension Fund 10 Standard Life Passive Plus V Pension Fund

4 Environment and Activity Environment Global equity markets enjoyed a relatively strong third quarter, with all major indices up in local currency terms. Supporting sentiment was improving US economic data, accompanied by a US Federal Reserve that is erring on the side of caution regarding rate increases. Monetary policy in the UK, Europe, Japan and China also remained supportive. Meanwhile, the fallout from the UK s EU referendum has been less severe in the short term than many feared, including for the UK economy. Within government bond markets, the 10- year UK gilt yield, which moves inversely to its price, fell to record lows before edging back up as economic signals proved healthier than anticipated. Meanwhile, corporate credit enjoyed a positive quarter. Strong technical factors, including the European Central Bank s Corporate Sector Purchase Programme and robust inflows into the asset class, were the primary driver. Activity Strategic Asset Allocation We review the Strategic Asset Allocation (SAA) for each of the Passive Plus funds every quarter, with the aim of ensuring that we continue to meet the best long-term interests of investors. Following the most recent review, no changes were made to the SAA model. Changes to underlying funds As part of our on-going governance we have reviewed the underlying funds across all five risk levels. There were no changes made to the underlying funds over the quarter. The UK commercial real estate market is gradually returning to some normality following the surprise result in the EU referendum. Investment activity remained subdued in the first couple of months after the referendum. Trading volumes in August were 1.6 billion, compared with 4.4 billion in August However, market conditions then appeared to stabilise, with volumes rising to 2 billion in the first half of September according to preliminary data. 1 Corporate Investment Proposition

5 Risk Unlike traditional managed funds, which aim to outperform the peer group, the risk based funds do not have a specific performance benchmark. Instead the strategic asset allocations aim to provide the maximum expected return for a given level of risk over the 10 year time horizon. The chart below shows the volatility (standard deviation) of each of the five funds within the Passive Plus range since their launch in March The volatility of the FTSE* All Share Index has been provided for reference only, this is not the benchmark for any of the funds. To ensure the funds continue to perform in line with customer expectations, we feel it is important to report on both the risk and return characteristics of the funds; not just for each fund in isolation, but as a range. Passive Plus Funds Fund volatility as at 30 September 2016 FTSE All Share Passive Plus V Passive Plus IV Passive Plus III Passive Plus II Passive Plus I % Source: Financial Express. All figures shown have been annualised using Monthly data from launch in March 2012 to September Fund volatility figures have been calculated from fund prices (net of charges) on a bid-bid basis, in pounds sterling ( ), with income reinvested. * FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited ( FTSE ) under licence. The FTSE All Share Index is calculated solely by FTSE. FTSE does not sponsor, endorse or promote this product and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright in the index values and constituent list vests in FTSE. FTSE All Share Index is a trade mark of FTSE. Corporate Investment Proposition 2

6 Risk and Return Characteristics This section illustrates the risk and return characteristics of the Passive Plus range from launch (March 2012) to end September The graph below compares the difference between the risk and return of the Passive Plus funds to a range of simple portfolios constructed from four assets that would be traditionally used by UK investors; UK equities, global equities, UK government bonds and global government bonds. These portfolios are represented by the blue line on the chart below. The blue line displays the historic risk and return characteristics of over 100 sample portfolios, ranging from a 100% allocation to equities (split evenly 50:50 between global and UK equities) at one end (red dot) to a 100% allocation to government bonds (green dot; 50:50 split between global and UK government bonds) at the other, and all the possible combinations in between. It is widely recognised that over the longer term, investment in equities should achieve a better return than a portfolio of bonds but this comes with a higher level of risk. In this example we can see that over the period under review, equities have outperformed bonds but with increased volatility and that the various combinations of the four assets delivered different risk/return outcomes. Passive Plus Funds Risk vs Return % Equities % Annualised Return Passive Plus II Passive Plus I Passive Plus IV Passive Plus III Passive Plus V c.30% Equities / 70% Government Bonds 100% Government Bonds % Annualised Risk (Standard Deviation) Source: Standard Life Investments; FTSE All Share Index and BofAML UK Gilts All Maturities Index, MSCI All Countries World Index and BOFA ML Global Government Index monthly return data denominated in GBP was sourced from Datastream from 01/03/2012 to 30/09/2016; Passive Plus performance calculated on net of fees basis prior to any basis swings being applied (not published prices). Risk is calculated using the annualised standard deviation of net monthly returns. An annual charge of 0.75% has been factored into each of the sample portfolios to allow for an accurate comparison of risk/return between the Passive Plus funds and the range of sample portfolios. The FTSE All-Share Index is calculated solely by FTSE International Limited ( FTSE ). FTSE does not sponsor, endorse or promote this fund. All copyright in the index values and constituent list vests in FTSE. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. All Share is a trade mark of FTSE. 3 Corporate Investment Proposition

7 Risk and Return Characteristics (continued) What does this mean? By applying our robust investment process, we aim to deliver outperformance on a riskadjusted basis, i.e. the portfolios appearing to the left and above the theoretical efficient frontier. Historically, this has been the case for all funds, but due to an extreme upwards movement in the efficient frontier in Q2 and Q3, Passive Plus V has not met this aim over these two quarters. The significant upwards movement was largely due to the impact of the sterling returns of both overseas equities and bonds. While we have been impacted by the exceptional market circumstances we witnessed in the last week of the second quarter, we remain confident in our ability to deliver outperformance on a risk-adjusted basis over the longer term. Corporate Investment Proposition 4

8 Performance The commentary below represents performance across the range of Passive Plus funds (ratings I - V). As these funds are predominantly managed passively, the commentary refers to the active components of each fund, namely absolute return, commercial property and high yield bonds. Global equity markets enjoyed a relatively strong third quarter, with all major indices up in local currency terms. Improving US economic data boosted sentiment, while monetary policy in the UK, Europe, Japan and China remained supportive. Meanwhile, the fallout from the UK s EU decision was less severe in the short term than many feared, including for the UK economy. Within bond markets, corporate credit enjoyed a positive quarter, helped by robust inflows. Finally, the UK commercial real estate market gradually returned to some normality following the surprise result in the EU referendum. The passive components of the Passive Plus funds use tracker funds managed by Vanguard Asset Management. When analysing the individual performance of each component, it is worth bearing in mind that differences between the fund performance and the underlying index can occur because of timing differences and the inherent process of pricing external funds. Over short periods this can lead to what looks like increased tracking errors (the degree to which the funds deviate from their benchmark indices) but over the medium term these differences will even out. Within the active components, the absolute return component (via the GARS portfolio) produced positive returns during the third quarter. Our equity exposures in Europe, the US and UK were rewarded. Most equity markets ended the quarter higher, as major central banks maintained and in some cases further loosened their already accommodative monetary policies. Our US equity relative value position preferring banks versus consumer staples was also profitable. Prospects for an increase in interest rates in the US improved during August, following the release of good economic data, with banks one of the sectors likely to benefit from rising rates. The Pooled Property Fund s net asset value (NAV) increased over the quarter and was ahead of the benchmark. However, a 5% market value adjustment (MVA) was applied to the Fund in June 2016, which had the effect of reducing the reported performance by this amount in Q2. During Q3 2016, the MVA was effectively reversed, which enhanced the Fund s quarterly performance numbers accordingly. Stripping out the unwinding of the 5% MVA, underlying performance over the quarter was disappointing. For the high yield portfolio, the primary driver of underperformance was our slightly defensive positioning. This was primarily comprised of a high cash allocation and an underweight exposure to CCC rated bonds. An underweight exposure to the energy sector also detracted from performance, although security selection was actually positive. There was a positive contribution to performance from security selection in the wireless & wirelines sector: an overweight holding in Sprint and an underweight holding in Telecom Italia both added value. 5 Corporate Investment Proposition

9 Standard Life Passive Plus I Pension Fund Performance Comparison as at 30 September 2016 Figures quoted are calculated, net of fees, on an offer to offer basis over periods to 30 September 2016, with gross income reinvested. The Comparative Index shown makes no allowance for charges Q Q Q Q Year 2 Years Years Fund Comparative Index Source: Standard Life Investments (Fund) and Thomson Reuters Datastream (Comparative Index) Note: Past performance is not a guide to future performance and the value of units can go down as well as up. The Comparative index is made up of representative indices based on the strategic asset allocation of the fund and do not take into account any out-performance targets. Note - as a result Global Absolute Return Strategies is currently represented by 6 month LIBOR. Composition by Fund Exposure Fund % Defensive Growth SL Vanguard UK Investment Grade Bond Index Pension Fund SL Vanguard UK Short-Term Investment Grade Bond Index Pension Fund Standard Life Money Market Pension Fund SL Vanguard UK Government Bond Index Pension Fund SL Vanguard UK Inflation Linked Gilt Index Pension Fund SL Vanguard FTSE UK All Share Index Pension Fund 6.54 SL Vanguard US Equity Pension Fund 5.33 SL SLI Global Absolute Return Strategies (Passive Plus) Pension Fund 4.86 Standard Life Property Pension Fund 2.68 SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 1.21 SL SLI Global High Yield Bond Pension Fund 1.19 SL Vanguard Japan Stock Index Pension Fund 0.93 SL Vanguard Emerging Markets Stock Index Pension Fund 0.92 SL Vanguard Pacific ex Japan Stock Index Pension Fund 0.62 FTSE International Limited ( FTSE ) does not sponsor, endorse, or promote these funds. All copyright in the index values and constituent list vests in FTSE. Standard Life group has obtained a licence from FTSE to use such copyright in the creation of this fund. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. Corporate Investment Proposition 6

10 Standard Life Passive Plus II Pension Fund Performance Comparison as at 30 September 2016 Figures quoted are calculated, net of fees, on an offer to offer basis over periods to 30 September 2016, with gross income reinvested. The Comparative Index shown makes no allowance for charges Q Q Q Q Year 2 Years 3 Years Fund Comparative Index Source: Standard Life Investments (Fund) and Thomson Reuters Datastream (Comparative Index) Note: Past performance is not a guide to future performance and the value of units can go down as well as up. The Comparative index is made up of representative indices based on the strategic asset allocation of the fund and do not take into account any out-performance targets. Note - as a result Global Absolute Return Strategies is currently represented by 6 month LIBOR. Composition by Fund Exposure Fund % Defensive Growth SL Vanguard UK Investment Grade Bond Index Pension Fund SL Vanguard UK Short-Term Investment Grade Bond Index Pension Fund Standard Life Money Market Pension Fund 9.74 SL Vanguard UK Inflation Linked Gilt Index Pension Fund 8.28 SL Vanguard UK Government Bond Index Pension Fund 6.74 SL Vanguard FTSE UK All Share Index Pension Fund SL Vanguard US Equity Pension Fund SL SLI Global Absolute Return Strategies (Passive Plus) Pension Fund 9.24 Standard Life Property Pension Fund 5.43 SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 2.40 SL Vanguard Japan Stock Index Pension Fund 1.95 SL Vanguard Emerging Markets Stock Index Pension Fund 1.83 SL SLI Global High Yield Bond Pension Fund 1.77 SL Vanguard Pacific ex Japan Stock Index Pension Fund 1.34 FTSE International Limited ( FTSE ) does not sponsor, endorse, or promote these funds. All copyright in the index values and constituent list vests in FTSE. Standard Life group has obtained a licence from FTSE to use such copyright in the creation of this fund. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. 7 Corporate Investment Proposition

11 Standard Life Passive Plus III Pension Fund Performance Comparison as at 30 September 2016 Figures quoted are calculated, net of fees, on an offer to offer basis over periods to 30 September 2016, with gross income reinvested. The Comparative Index shown makes no allowance for charges Q Q Q Q Year 2 Years Years Fund Comparative Index Source: Standard Life Investments (Fund) and Thomson Reuters Datastream (Comparative Index) Note: Past performance is not a guide to future performance and the value of units can go down as well as up. The Comparative index is made up of representative indices based on the strategic asset allocation of the fund and do not take into account any out-performance targets. Note - as a result Global Absolute Return Strategies is currently represented by 6 month LIBOR. Composition by Fund Exposure Fund % Defensive Growth SL Vanguard UK Investment Grade Bond Index Pension Fund SL Vanguard UK Short-Term Investment Grade Bond Index Pension Fund Standard Life Money Market Pension Fund 8.53 SL Vanguard FTSE UK All Share Index Pension Fund SL SLI Global Absolute Return Strategies (Passive Plus) Pension Fund SL Vanguard US Equity Pension Fund Standard Life Property Pension Fund 7.76 SL Vanguard Emerging Markets Stock Index Pension Fund 5.45 SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 3.11 SL SLI Global High Yield Bond Pension Fund 2.51 SL Vanguard Japan Stock Index Pension Fund 2.32 SL Vanguard Pacific ex Japan Stock Index Pension Fund 1.83 FTSE International Limited ( FTSE ) does not sponsor, endorse, or promote these funds. All copyright in the index values and constituent list vests in FTSE. Standard Life group has obtained a licence from FTSE to use such copyright in the creation of this fund. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. Corporate Investment Proposition 8

12 Standard Life Passive Plus IV Pension Fund Performance Comparison as at 30 September 2016 Figures quoted are calculated, net of fees, on an offer to offer basis over periods to 30 September 2016, with gross income reinvested. The Comparative Index shown makes no allowance for charges Q Q Q Q Year 2 Years Years Fund Comparative Index Source: Standard Life Investments (Fund) and Thomson Reuters Datastream (Comparative Index) Note: Past performance is not a guide to future performance and the value of units can go down as well as up. The Comparative index is made up of representative indices based on the strategic asset allocation of the fund and do not take into account any out-performance targets. Note - as a result Global Absolute Return Strategies is currently represented by 6 month LIBOR. Composition by Fund Exposure Fund % Defensive Growth SL Vanguard UK Investment Grade Bond Index Pension Fund 3.95 SL Vanguard UK Short-Term Investment Grade Bond Index Pension Fund 3.94 Standard Life Money Market Pension Fund 3.44 SL Vanguard FTSE UK All Share Index Pension Fund SL SLI Global Absolute Return Strategies (Passive Plus) Pension Fund SL Vanguard US Equity Pension Fund Standard Life Property Pension Fund SL Vanguard Emerging Markets Stock Index Pension Fund 7.32 SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 3.91 SL SLI Global High Yield Bond Pension Fund 3.53 SL Vanguard Japan Stock Index Pension Fund 3.07 SL Vanguard Pacific ex Japan Stock Index Pension Fund 2.36 FTSE International Limited ( FTSE ) does not sponsor, endorse, or promote these funds. All copyright in the index values and constituent list vests in FTSE. Standard Life group has obtained a licence from FTSE to use such copyright in the creation of this fund. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. 9 Corporate Investment Proposition

13 Standard Life Passive Plus V Pension Fund Performance Comparison as at 30 September 2016 Figures quoted are calculated, net of fees, on an offer to offer basis over periods to 30 September 2016, with gross income reinvested. The Comparative Index shown makes no allowance for charges Q Q Q Q Year 2 Years Years Fund Comparative Index Source: Standard Life Investments (Fund) and Thomson Reuters Datastream (Comparative Index) Note: Past performance is not a guide to future performance and the value of units can go down as well as up. The Comparative index is made up of representative indices based on the strategic asset allocation of the fund and do not take into account any out-performance targets. Note - as a result Global Absolute Return Strategies is currently represented by 6 month LIBOR. Composition by Fund Exposure Fund % Defensive Growth Standard Life Money Market Pension Fund 1.00 SL Vanguard FTSE UK All Share Index Pension Fund SL Vanguard US Equity Pension Fund SL SLI Global Absolute Return Strategies (Passive Plus) Pension Fund SL Vanguard Emerging Markets Stock Index Pension Fund 8.00 SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 5.50 SL Vanguard Japan Stock Index Pension Fund 4.23 SL SLI Global High Yield Bond Pension Fund 3.99 Standard Life Property Pension Fund 3.88 SL Vanguard Pacific ex Japan Stock Index Pension Fund 3.15 FTSE International Limited ( FTSE ) does not sponsor, endorse, or promote these funds. All copyright in the index values and constituent list vests in FTSE. Standard Life group has obtained a licence from FTSE to use such copyright in the creation of this fund. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. Corporate Investment Proposition 10

14

15

16 Find out more For more information speak to your usual Standard Life contact. Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority Standard Life, images reproduced under licence 0916